Shares in Cambodian casino operator NagaCorp plunged as much as 18 per cent on the Hong Kong stock exchange yesterday, after the company announced a US$369 million deal to buy a yet-to-be-built Phnom Penh entertainment complex from its majority shareholder.

NagaCorp will issue shares and convertible bonds equal to 75 per cent of its existing share capital to chief executive and controlling shareholder Chen Lip Keong upon completion of work on the retail-hotel-casino complex, which is being funded by Chen and will double the firm's casino hotel footprint in the Cambodian capital when it is finished in 2016.

The US$369 million consideration represents the estimated construction and development costs to be borne by Chen, according to the firm. It compares with NagaCorp's market value of HK$3.64 billion or US$467.6 million as of yesterday's market close, and the approximately US$150 million the company spent developing its flagship facility, the 502-room NagaWorld casino hotel.

NagaCorp operates Phnom Penh's only full-scale casino (including table games), and competes for visitors from Southeast Asia and China against smaller casinos along Cambodia's borders with Thailand and Vietnam - as well as larger resorts in Malaysia, Singapore and Macau.

The company started gaming operations in 1995 on a floating casino anchored in Phnom Penh's Bassac River before opening NagaWorld on a nearby plot of waterfront land in 2003. The hotel has VIP and mass-market gambling halls as well as 12 restaurants, a nightclub, karaoke lounge and spa, and covers 110,000 square metres of floor area.

The new project would expand NagaWorld and double the company's developed floor space. A new 97,000-square-metre complex near the existing property would feature a standalone hotel tower atop a podium block housing retail, gaming and conference facilities.

The new casino-hotel block would connect to the existing NagaWorld development through a two-level pedestrian shopping arcade called NagaCity Walk, which spans 15,000 square metres of floor area and would be flanked by a riverfront park covering 10,000 square metres.

'We believe the current NagaWorld facility is already capacity-constrained, particularly with respect to hotel rooms,' Union Gaming Research Macau analyst Grant Govertsen said. 'Additional gaming space also makes sense... as the company begins its marketing push into the underpenetrated, wealthy and deep Thai market, as well as other Asean [Association of Southeast Asian Nations] countries.'

Chen, who owns 63 per cent of Nagacorp, has received development approval for the new projects from the Cambodian government, the company said. To date, he has spent US$31.2 million on land premiums and project planning fees, with full construction scheduled to begin in the third quarter of this year and be completed in three to five years.

NagaCorp said it was not going to build the project on its own so as to outsource the risks of securing funding and escalating costs. It also wanted to remain debt free and conserve its cash for dividend payouts.

The deal calls for NagaCorp to issue Chen convertible bonds representing 1.57 billion new shares at an exercise price of HK$1.8376 each. The stock fell 16.7 per cent in heavy trading to close at HK$1.75 following the announcement.